Medium-term outlook a worry: Stevens

Reserve Bank governor Glenn Stevens does not believe Australia has an imminent budget problem, but is concerned about the medium-term outlook.

Reserve Bank boss Glenn Stevens has urged Australia’s political leaders to start a “serious conversation” about government debt before it becomes a real problem.

The central bank governor’s appearance before federal politicians of the House Economics Committee in Sydney on Friday stuck very much to the theme of the RBA’s recent statements, and one that will likely see the cash rate held steady for a period.

“I think if it’s possible for there to be a period of stability, then that in itself at the margins is probably helpful to people,” Mr Stevens said in the first of his twice-yearly public hearings before the committee.

The RBA left the cash rate unchanged at an all-time low of 2.5 per cent at this week’s monthly board meeting, and where it has stood since August.

National Australia Bank senior economist David de Garis said that with that decision only a few days old, any about turn by Mr Stevens “would have been a complete surprise”.

As usual, Mr Stevens’ comments on federal budget policy were guarded during three hours of quizzing by the committee. He also took several questions from local school children.

But he did warn Australia faces problems in the future because some initiatives have not been fully funded.

He insisted the nation does not have an imminent budget problem, but rather a medium-term one.

“There are some social programs that we all think are very good, that we are committed to do, and they are not fully funded,” he said.

Australia has low government debt compared to most advanced countries, he said.

But that shouldn’t stop political leaders having a serious discussion with each other and the community before its becomes a problem.

“We have issues and problems that need to be dealt with but we’re not in the same camp than say many countries in Europe,” he said.

Treasurer Joe Hockey was unavailable for immediate comment.

The government’s mid-year budget review in December warned of deficits stretching out for the next decade and debt ballooning to nearly $670 billion if remedial action is not taken.

More broadly, Mr Stevens said unemployment, which currently stands at a 10-year high of six per cent, has yet to peak.

“Unemployment will rise further; I would hope not too much further,” he said.

While new data had shown economic growth strengthening, it probably took one or two quarters for the the labour market to catch up, he said.

The drivers of growth were shifting and the decline in mining investment would accelerate over the coming year.

“Business investment spending outside mining, which has been very low indeed, is bound to pick up at some stage,” he said.

In particular, he expected dwelling investment activity would rise strongly.

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